About and 5 DRATs functioning all over the country.

About the scheme

 

One
proactive recovery measure to control NPAs is Debt Recovery Tribunal.  Before 1993, banks had to spend long time in
fighting legal battles against defaulting borrowers, beginning with the filing
of claims in the courts. Long-time taken to resolve cases signalled the inefficiency
of the judicial machinery in recovery of bad loans.

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The
Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunal (DRATs)
were established under the Recovery of Debts Due to Banks and Financial
Institutions Act (RDDBFI Act), 1993 with the specific objective of providing
expeditious adjudication and recovery of NPAs of 10 lakh and above. Appeals
against orders passed by Debts Recovery Tribunal (DRT) lie before Debts
Recovery Appellate Tribunal (DRAT).

 

Presently, there are 38 DRTs and 5 DRATs functioning all over the country.
The recent amendments to DRT Act via the Enforcement of
Security Interest and Recovery of Debts Laws & Miscellaneous Provisions
(Amendment) Act, 2016 to rationalize the procedures and timelines followed by
these Tribunals for expeditious adjudication and speedier resolution of
defaulted loans in time bound manner.

 

Provisions under the scheme

 

Scope and powers of the DRT:

 

·       
Formally, an application for recovery of debt
can be made to the DRTs for all debts valued at more than INR 1 million. 1 For
lesser amounts, the banks and financial institutions can appeal to the Civil
Courts. This provision enables rationalization and coherence with other
bankruptcy legislation such as SARFAESI that specify different amounts and that
can also be taken up by DRT.

·       
The DRT and DRAT have their own power to
regulate the procedures and are not to be bound by the procedure laid down by
the former CPC.

·       
Approach to the higher courts is through writ
petitions filed at the courts. A law degree is not necessary to argue such
cases.

 

Jurisdiction of DRTs:

·       
The jurisdictional powers and authority of the
DRT and DRAT are set up so civil courts do not directly intervene on the main
issue on which DRTs must rule

·       
The DRAT has the power to address appeals made
against any order made, or deemed to have been made, by the DRT. Relief against
a judgment of DRAT can be sought only from the High Court and the Supreme
Court.

 

 

Routes of application:

·       
The two ways of applying to the DRT are
through direct application at the respective tribunals or through the SARAFESI
route.

·       
In the SARAFESI route, the transition from
SARAFESI to DRT occurs when collateral is insufficient to fulfil obligations to
creditors. In such case the dues of the secured creditors are not fully
satisfied with the sale proceeds of the secured assets, the creditors may file
an application to the DRT for recovery of the remaining portion of the dues.
The borrower can also appeal to the DRT against the creditor’s finding

 

Timelines for resolution:

·       
Recent amendments have revamped the DRT
mechanism, the Bill proposes electronic filing of recovery applications,
documents and written statements. Making the process time bound, it prescribes
a period of 60 days for the District Magistrate to clear an application clear
an application by the creditor to take over possession of the collateral.

·       
For applications made to DRT under the
SARFAESI Act, DRTs are asked to dispose cases within 30 days

 

Provision to appeal:

·       
Any person aggrieved by an order of the Debt
Recovery Tribunal passed under section 17 may prefer an appeal, along with
requisite fees, to the Appellate Tribunal within thirty days from the date of
the receipt of the order of the Debt Recovery Tribunal

 

Flowchart for DRT
process:

 

 

Banks which used it and impact:

 

SBI led a 15 bank consortium to file a case with DRT in 2017 to
recover its dues from Kingfisher Airlines Limited (KAL). The Debt Recovery
Tribunal’s Bengaluru Bench allowed recovery proceedings against Kingfisher
Airlines Ltd and its promoter Vijay Mallya and directed them to repay ?6,203
crore to the State Bank of India-led consortium.

The Tribunal said that due amount of ?6,203.35 crore should be
paid “jointly and severally” by the airline and its guarantors Mallya, United
Breweries (Holdings) Ltd and Kingfisher Finvest (India) Ltd.  

However, the DRT has no power to condone delay.

 

Overall impact of the scheme.

 

Pros and Cons:

 

Pros:

The Debts Recovery Tribunal has to deal with extraordinary complex
commercial laws within the narrow ambit of the two laws, namely the Recovery of
Debts Due to Banks and Financial Institutions Act as well as the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interests
Act.
Over the years the Debts Recovery Tribunals have evolved into fine bodies with
lot of expertise. There is a plethora of judgments from the Supreme Court as
well as the various High Courts which have paved the way of the Debts Recovery
Tribunals to chart their courses.

 

Cons:

 

·       
There is no mechanism in place to ensure that
the tribunal disposes the case in a timely manner. There is a strong need to
bring in more accountability for the DRT

 

·       
Inadequate infrastructure – the small number
of DRTs and Debt Recovery Appellate Tribunals, where judgments of DRTs can be
appealed.

 

·       
Debts Recovery Tribunal’s progress is stunted
when it came to large and powerful borrowers. These borrowers were able to
stall the progress in the Debts Recovery Tribunals on various grounds,
primarily on the ground that their claims against the lenders were pending in
the civil courts, and if the Debts Recovery Tribunal were adjudicating the
matter and auction off their properties irreparable damage would occur to them

 

·       
It is understood that in a number of cases,
DRT grants time to borrower / applicant to make payment and subject to payment,
bank’s SARFAESI action is stayed and matter lingers on for a long period. Though
section 17 (5) provides that an application under section 17 shall be disposed
of within 30 days of date of application (extendable up to 4 months) the said
time frame is not being strictly followed in practice. There is long delay in
passing orders by the DRTs.

 

 

Failure and success in Indian context

 

In 2013-14, Rs 30,950 crore was recovered in under DRTs.  Rs 2,36,600 crore Outstanding debt was sought
to be recovered in 2013-14. A paltry 13 per cent was the actual recovery rate for
the period (2013-14).

While law indicates cases before DRTs must be disposed off in 6
months, only about a fourth of pending cases at the beginning of the year were
disposed during the year. The small number of DRTs and Debt Recovery Appellate
Tribunals were a reason for the dismal scene. Although the amendments to the
act increased the number of tribunals to 38, the delay in recovery persists.

 

The infrastructure leading to the backlog can be seen by comparing
it as follows:

 

 

With the recovery of loans at 20%, the lowest in the world, a committee
that drafted the Insolvency Bankruptcy Code observed that, the current state of
the bankruptcy process for firms is a highly fragmented framework. In a
situation where one forum decides on matters relating to the rights of the
creditor, while another decides on those relating to the rights of the debtor,
the decisions are readily appealed against and either stayed or overturned in a
higher court. Ideally, if economic value is indeed to be preserved, there must
be a single forum that hears both sides of the case and make a judgement based
on both.

 

 

 

Assets
referred under the scheme:

 

Recovery of banks’ NPAs remains poor, having declined to 20.8 per
cent by end-March 2017 from 61.8 per cent in 2009. During 2016- 17, Debt
Recovery Tribunals (DRTs) made the highest amount of recovery, followed by the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest (SARFAESI) Act and Lok Adalats. The significant improvement
in the case of DRTs was due to opening of new tribunals, strengthening existing
infrastructure and computerised processing of court cases.

 

 

 

 

 

Extra data:

Comparison of schemes:

 

 

 

Strength of insolvency framework
index (0-16)

8.5

Commencement of proceedings index
(0-3)

2.0

What procedures are available to a DEBTOR when
commencing insolvency proceedings?

(c) Debtor may file for
reorganization only

0.5

Does the insolvency framework allow a CREDITOR to
file for insolvency of the debtor?

N/A

0.5

What basis for commencement of the insolvency
proceedings is allowed under the insolvency framework?

(a) Debtor is generally unable to pay
its debts as they mature

1.0

Management of debtor’s assets index
(0-6)

4.5

Does the insolvency framework allow the
continuation of contracts supplying essential goods and services to the
debtor?

No

0.0

Does the insolvency framework allow the rejection
by the debtor of overly burdensome contracts?

Yes

1.0

Does the insolvency framework allow avoidance of
preferential transactions?

Yes

1.0

Does the insolvency framework allow avoidance of
undervalued transactions?

Yes

1.0

Does the insolvency framework provide for the
possibility of the debtor obtaining credit after commencement of insolvency
proceedings?

Yes

1.0

Does the insolvency framework assign priority to
post-commencement credit?

(a) Yes over all pre-commencement
creditors, secured or unsecured

0.5

Reorganization proceedings index
(0-3)

1.0

Which creditors vote on the proposed
reorganization plan?

(c) Other

0.0

Does the insolvency framework require that
dissenting creditors in reorganization receive at least as much as what they
would obtain in a liquidation?

Yes

1.0

Are the creditors divided into classes for the
purposes of voting on the reorganization plan, does each class vote
separately and are creditors in the same class treated equally?

No

0.0

Creditor participation index (0-4)

1.0

Does the insolvency framework require approval by
the creditors for selection or appointment of the insolvency representative?

No

0.0

Does the insolvency framework require approval by
the creditors for sale of substantial assets of the debtor?

No

0.0

Does the insolvency framework provide that a
creditor has the right to request information from the insolvency
representative?

Yes

1.0

Does the insolvency framework provide that a
creditor has the right to object to decisions accepting or rejecting
creditors’ claims?

No

0.0